G.R. No.

206147, January 13, 2016

MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C. GACOTT, Respondent.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of
Court filed by petitioner Michael C. Guy (Guy), assailing the June 25, 2012
Decision1 and the March 5, 2013 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
No. 94816, which affirmed the June 28, 20093 and February 19, 20104 Orders of the
Regional Trial Court, Branch 52, Puerto Princesa City, Palawan (RTC), in Civil Case No.
3108, a case for damages. The assailed RTC orders denied Guy's Motion to Lift
Attachment Upon Personalty5 on the ground that he was not a judgment debtor.

The Facts

It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from
Palawan purchased two (2) brand new transreceivers from Quantech Systems
Corporation (QSC) in Manila through its employee Rey Medestomas (Medestomas),
amounting to a total of PI 8,000.00. On May 10, 1997, due to major defects, Gacott
personally returned the transreceivers to QSC and requested that they be replaced.
Medestomas received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC
informed him that there were no available units and that it could not refund the
purchased price. Despite several demands, both oral and written, Gacott was never
given a replacement or a refund. The demands caused Gacott to incur expenses in the
total amount of P40,936.44. Thus, Gacott filed a complaint for damages. Summons was
served upon QSC and Medestomas, afterwhich they filed their Answer, verified by
Medestomas himself and a certain Elton Ong (Ong). QSC and Medestomas did not
present any evidence during the trial.6

In a Decision,7 dated March 16, 2007, the RTC found that the two (2) transreceivers
were defective and that QSC and Medestomas failed to replace the same or return
Gacott's money. The dispositive portion of the decision reads: chanRoblesvirtualLawlibrary

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the

defendants to jointly and severally pay plaintiff the following:
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1. Purchase price plus 6% per annum from March 3,1997 up to and until fully paid
-------------------------------------------------------- P 18,000.00
2. Actual Damages ----------------------------------- 40,936.44
3. Moral Damages -----------------------------------  75,000.00
4. Corrective Damages ----------------------------  100,000.00
5. Attorney's Fees ------------------------------------ 60,000.00
6. Costs.
SO ORDERED.
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The decision became final as QSC and Medestomas did not interpose an appeal. Gacott
then secured a Writ of Execution,8 dated September 26, 2007.

During the execution stage, Gacott learned that QSC was not a corporation, but
was in fact a general partnership registered with the Securities and Exchange
Commission (SEC). In the articles of partnership,9 Guy was appointed as General
Manager of QSC.

To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to
the main office of the Department of Transportation and Communications, Land
Transportation Office (DOTC-LTO), Quezon City, and verified whether Medestomas, QSC
and Guy had personal properties registered therein.10 Upon learning that Guy had
vehicles registered in his name, Gacott instructed the sheriff to proceed with the
attachment of one of the motor vehicles of Guy based on the certification issued by the
DOTC-LTO.11

On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the Notice of
Attachment/Levy upon Personalty12 served upon the record custodian of the DOTC-LTO
of Mandaluyong City. A similar notice was served to Guy through his housemaid at his
residence.

Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he
was not a judgment debtor and, therefore, his vehicle could not be attached.13 Gacott
filed an opposition to the motion.

The RTC Order

On June 28, 2009, the RTC issued an order denying Guy's motion. It explained that
considering QSC was not a corporation, but a registered partnership, Guy should be
treated as a general partner pursuant to Section 21 of the Corporation Code, and he
may be held jointly and severally liable with QSC and Medestomas. The trial court
wrote: chanRoblesvirtualLawlibrary

All persons who assume to act as a corporation knowing it to be without

authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof x x x. Where, by any
wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership x x x, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the partnership
is liable therefore to the same extent as the partner so acting or omitting to
act. All partners are liable solidarity with the partnership for everything
chargeable to the partnership under Article 1822 and 1823.14 cralawlawlibrary

Accordingly, it disposed: chanRoblesvirtualLawlibrary

WHEREFORE, with the ample discussion of the matter, this Court finds and so holds
that the property of movant Michael Guy may be validly attached in satisfaction of the
liabilities adjudged by this Court against Quantech Co., the latter being an ostensible
Corporation and the movant being considered by this Court as a general partner therein
in accordance with the order of this court impressed in its decision to this case imposing
joint and several liability to the defendants. The Motion to Lift Attachment Upon
Personalty submitted by the movant is therefore DENIED for lack of merit.

SO ORDERED.15 cralawlawlibrary

Not satisfied, Guy moved for reconsideration of the denial of his motion. He argued that
he was neither impleaded as a defendant nor validly served with summons and, thus,
the trial court did not acquire jurisdiction over his person; that under Article 1824 of the
Civil Code, the partners were only solidarily liable for the partnership liability under
exceptional circumstances; and that in order for a partner to be liable for the
debts of the partnership, it must be shown that all partnership assets had first
been exhausted.16

On February 19, 2010, the RTC issued an order17 denying his motion.

The denial prompted Guy to seek relief before the CA.

The CA Ruling

On June 25, 2012, the CA rendered the assailed decision dismissing Guy's appeal for
the same reasons given by the trial court. In addition thereto, the appellate court
stated: chanRoblesvirtualLawlibrary

We hold that Michael Guy, being listed as a general partner of QSC during that time,
cannot feign ignorance of the existence of the court summons. The verified Answer filed
by one of the partners, Elton Ong, binds him as a partner because the Rules of Court
does not require that summons be served on all the partners. It is sufficient that
service be made on the "president, managing partner, general manager, corporate
secretary, treasurer or in-house counsel." To Our mind, it is immaterial whether the
summons to QSC was served on the theory that it was a corporation. What is important
is that the summons was served on QSC's authorized officer xxx.18
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ChanRoblesVirtualawlibrary

The CA stressed that Guy, being a partner in QSC, was bound by the summons served
upon QSC based on Article 1821 of the Civil Code. The CA further opined that the
law did not require a partner to be actually involved in a suit in order for him
to be made liable. He remained "solidarity liable whether he participated or not,
whether he ratified it or not, or whether he had knowledge of the act or omission."19

Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA in its
assailed resolution, dated March 5, 2013.

Hence, the present petition raising the following

ISSUE

THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

HOLDING THAT PETITIONER GUY IS SOLIDARILY LIABLE WITH THE
PARTNERSHIP FOR DAMAGES ARISING FROM THE BREACH OF THE CONTRACT
OF SALE WITH RESPONDENT GACOTT.20
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ChanRoblesVirtualawlibrary

Guy argues that he is not solidarity liable with the partnership because the
solidary liability of the partners under Articles 1822, 1823 and 1824 of the
Civil Code only applies when it stemmed from the act of a partner. In this case,
the alleged lapses were not attributable to any of the partners. Guy further invokes
Article 1816 of the Civil Code which states that the liability of the partners to the
partnership is merely joint and subsidiary in nature.

In his Comment,21 Gacott countered, among others, that because Guy was a general
and managing partner of QSC, he could not feign ignorance of the transactions
undertaken by QSC. Gacott insisted that notice to one partner must be considered as
notice to the whole partnership, which included the pendency of the civil suit against it.

In his Reply,22 Guy contended that jurisdiction over the person of the partnership was
not acquired because the summons was never served upon it or through any of its
authorized office. He also reiterated that a partner's liability was joint and subsidiary,
and not solidary.

The Court's Ruling

The petition is meritorious.

The service of summons was

flawed; voluntary appearance
cured the defect 

Jurisdiction over the person, or jurisdiction in personam - the power of the court to
render a personal judgment or to subject the parties in a particular action to the
judgment and other rulings rendered in the action - is an element of due process that is
essential in all actions, civil as well as criminal, except in actions in rem or quasi in
rem.23 Jurisdiction over the person of the plaintiff is acquired by the mere filing of the
complaint in court. As the initiating party, the plaintiff in a civil action voluntarily
submits himself to the jurisdiction of the court. As to the defendant, the court acquires
jurisdiction over his person either by the proper service of the summons, or by his
voluntary appearance in the action.24

Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the
defendant is a corporation, partnership or association organized under the laws of the
Philippines with a juridical personality, the service of summons may be made on the
president, managing partner, general manager, corporate secretary, treasurer, or in-
house counsel. Jurisprudence is replete with pronouncements that such provision
provides an exclusive enumeration of the persons authorized to receive summons for
juridical entities.25
cralawred

The records of this case reveal that QSC was never shown to have been served with the
summons through any of the enumerated authorized persons to receive such, namely:
president, managing partner, general manager, corporate secretary, treasurer or in-
house counsel. Service of summons upon persons other than those officers
enumerated in Section 11 is invalid. Even substantial compliance is not sufficient
service of summons. The CA was obviously mistaken when it opined that it was
immaterial whether the summons to QSC was served on the theory that it was a
corporation.27

Nevertheless, while proper service of summons is necessary to vest the court

jurisdiction over the defendant, the same is merely procedural in nature and the lack of
or defect in the service of summons may be cured by the defendant's subsequent
voluntary submission to the court's jurisdiction through his filing a responsive pleading
such as an answer. In this case, it is not disputed that QSC filed its Answer despite the
defective summons. Thus, jurisdiction over its person was acquired through voluntary
appearance.

A partner must be separately

and distinctly impleaded before
he can be bound by a judgment

The next question posed is whether the trial court's jurisdiction over QSC extended to
the person of Guy insofar as holding him solidarity liable with the partnership. After a
thorough study of the relevant laws and jurisprudence, the Court answers in the
negative.

Although a partnership is based on  delectus personae or mutual agency,

whereby any partner can generally represent the partnership in its business
affairs, it is  non sequitur  that a suit against the partnership is necessarily a
suit impleading each and every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and separate personality
from the persons composing it.28

In relation to the rules of civil procedure, it is elementary that a judgment of a court is

conclusive and binding only upon the parties and their successors-in-interest after the
commencement of the action in court.29 A decision rendered on a complaint in a civil
action or proceeding does not bind or prejudice a person not impleaded therein, for no
person shall be adversely affected by the outcome of a civil action or proceeding in
which he is not a party.30 The principle that a person cannot be prejudiced by a ruling
rendered in an action or proceeding in which he has not been made a party conforms to
the constitutional guarantee of due process of law.31

In Muñoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and given the
opportunity to take part in the proceedings was not bound by the decision declaring as
null and void the title from which his title to the property had been derived. The effect
of a judgment could not be extended to non-parties by simply issuing an alias writ of
execution against them, for no man should be prejudiced by any proceeding to which
he was a stranger.

In Aguila v. Court of Appeals33 the complainant had a cause of action against the

partnership. Nevertheless, it was the partners themselves that were impleaded in the
complaint. The Court dismissed the complaint and held that it was the partnership, not
its partners, officers or agents, which should be impleaded for a cause of action against
the partnership itself. The Court added that the partners could not be held liable for the
obligations of the partnership unless it was shown that the legal fiction of a different
juridical personality was being used for fraudulent, unfair, or illegal purposes.34

Here, Guy was never made a party to the case. He did not have any participation in the
entire proceeding until his vehicle was levied upon and he suddenly became QSC's "co-
defendant debtor" during the judgment execution stage. It is a basic principle of law
that money judgments are enforceable only against the property incontrovertibly
belonging to the judgment debtor.35 Indeed, the power of the court in executing
judgments extends only to properties unquestionably belonging to the judgment debtor
alone. An execution can be issued only against a party and not against one who did not
have his day in court. The duty of the sheriff is to levy the property of the judgment
debtor not that of a third person. For, as the saying goes, one man's goods shall not be
sold for another man's debts.36

In the spirit of fair play, it is a better rule that a partner must first be impleaded before
he could be prejudiced by the judgment against the partnership. As will be discussed
later, a partner may raise several defenses during the trial to avoid or mitigate his
obligation to the partnership liability. Necessarily, before he could present evidence
during the trial, he must first be impleaded and informed of the case against him. It
would be the height of injustice to rob an innocent partner of his hard-earned personal
belongings without giving him an opportunity to be heard. Without any showing that
Guy himself acted maliciously on behalf of the company, causing damage or injury to
the complainant, then he and his personal properties cannot be made directly and
solely accountable for the liability of QSC, the judgment debtor, because he was not a
party to the case.

Further, Article 1821 of the Civil Code does not state that there is no need to
implead a partner in order to be bound by the partnership liability. It provides
that: chanRoblesvirtualLawlibrary

Notice to any partner of any matter relating to partnership affairs, and the
knowledge of the partner acting in the particular matter, acquired while a
partner or then present to his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the acting partner, operate as
notice to or knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner.

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[Emphases and Underscoring Supplied]

A careful reading of the provision shows that notice to any partner, under certain
circumstances, operates as notice to or knowledge to the partnership only. Evidently, it
does not provide for the reverse situation, or that notice to the partnership is notice to
the partners. Unless there is an unequivocal law which states that a partner is
automatically charged in a complaint against the partnership, the constitutional right to
due process takes precedence and a partner must first be impleaded before he can be
considered as a judgment debtor. To rule otherwise would be a dangerous precedent,
harping in favor of the deprivation of property without ample notice and hearing, which
the Court certainly cannot countenance.

Partners' liability is subsidiary

and generally joint; immediate levy
upon the property of a partner
cannot be made

Granting that Guy was properly impleaded in the complaint, the execution of judgment
would be improper. Article 1816 of the Civil Code governs the liability of the partners to
third persons, which states that: chanRoblesvirtualLawlibrary

Article 1816. All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership
contract.

cralawlawlibrary
[Emphasis supplied]

This provision clearly states that,  first, the partners' obligation with respect to the
partnership liabilities is subsidiary in nature. It provides that the partners
shall only be liable with their property after all the partnership assets have
been exhausted. To say that one's liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to sufficiently satisfy
the obligation. Resort to the properties of a partner may be made only after
efforts in exhausting partnership assets have failed or that such partnership
assets are insufficient to cover the entire obligation. The subsidiary nature of the
partners' liability with the partnership is one of the valid defenses against a premature
execution of judgment directed to a partner.

In this case, had he been properly impleaded, Guy's liability would only arise after
the properties of QSC would have been exhausted. The records, however,
miserably failed to show that the partnership's properties were exhausted. The
report37 of the sheriff showed that the latter went to the main office of the DOTC-LTO in
Quezon City and verified whether Medestomas, QSC and Guy had personal properties
registered therein. Gaeott then instructed the sheriff to proceed with the attachment of
one of the motor vehicles of Guy.38 The sheriff then served the Notice of
Attachment/Levy upon Personalty to the record custodian of the DOTC-LTO of
Mandaluyong City. A similar notice was served to Guy through his housemaid at his
residence.

Clearly, no genuine efforts were made to locate the properties of QSC that could have
been attached to satisfy the judgment - contrary to the clear mandate of Article 1816.
Being subsidiarily liable, Guy could only be held personally liable if properly impleaded
and after all partnership assets had been exhausted.

Second, Article 1816 provides that the partners' obligation to third persons with respect
to the partnership liability is pro rata  or joint. Liability is joint when a debtor is liable
only for the payment of only a proportionate part of the debt. In contrast,
a solidary liability makes a debtor liable for the payment of the entire debt. In the same
vein, Article 1207 does not presume solidary liability unless: 1) the obligation
expressly so states; or 2) the law or nature requires solidarity. With regard to
partnerships, ordinarily, the liability of the partners is not solidary.39 The joint liability of
the partners is a defense that can be raised by a partner impleaded in a complaint
against the partnership.

In other words, only in exceptional circumstances shall the partners' liability be solidary
in nature. Articles 1822, 1823 and 1824 of the Civil Code provide for these exceptional
conditions, to wit:chanRoblesvirtualLawlibrary

Article 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the partnership,
or any penalty is incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.

Article 1823. The partnership is bound to make good the loss: chanRoblesvirtualLawlibrary

(1)  Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a
third person and the money or property so received is misapplied by any partner while
it is in the custody of the partnership.

Article 1824. All partners are liable solidarity with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823.

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[Emphases Supplied]

In essence, these provisions articulate that it is the act of a partner which caused loss

or injury to a third person that makes all other partners solidarity liable with the
partnership because of the words "any wrongful act or omission of any partner acting in
the ordinary course of the business, " "one partner  acting within the scope of his
apparent authority" and "misapplied by any partner while it is in the custody of the
partnership." The obligation is solidary because the law protects the third person, who
in good faith relied upon the authority of a partner, whether such authority is real or
apparent.40

In the case at bench, it was not shown that Guy or the other partners did a wrongful
act or misapplied the money or property he or the partnership received from Gacott. A
third person who transacted with said partnership can hold the partners solidarity liable
for the whole obligation if the case of the third person falls under Articles 1822
or 1823.41 Gacott's claim stemmed from the alleged defective transreceivers he bought
from QSC, through the latter's employee, Medestomas. It was for a breach of warranty
in a contractual obligation entered into in the name and for the account of QSC, not
due to the acts of any of the partners. For said reason, it is the general rule under
Article 1816 that governs the joint liability of such breach, and not the exceptions under
Articles 1822 to 1824. Thus, it was improper to hold Guy solidarity liable for the
obligation of the partnership.

Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot be applied

to sustain Guy's liability. The said provision states that a general partner shall be liable
for all debts, liabilities and damages incurred by an ostensible corporation. It must be
read, however, in conjunction with Article 1816 of the Civil Code, which governs the
liabilities of partners against third persons. Accordingly, whether QSC was an alleged
ostensible corporation or a duly registered partnership, the liability of Guy, if any,
would remain to be joint and subsidiary because, as previously stated, all
partners shall be liable pro rata with all their property and after all the partnership
assets have been exhausted for the contracts which may be entered into in the name
and for the account of the partnership.

WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and the March 5,
2013 Resolution of the Court of Appeals in CA-G.R. CV No. 94816 are
hereby REVERSED and SET ASIDE. Accordingly, the Regional Trial Court, Branch 52,
Puerto Princesa City, is ORDERED TO RELEASE Michael C. Guy's Suzuki Grand Vitara
subject of the Notice of Levy/Attachment upon Personalty.

SO ORDERED. chanroblesvirtuallawlibrary